Could Fox Really Cut TV Commercials to 2 Minutes an Hour by 2020?

In this segment from MarketFoolery, host Chris Hill is joined by Motley Fool Asset Management's Bill Barker to take a stroll through the landscape of advertising, which is in a state of flux now. Online is disrupting TV -- by which we mean siphoning away money and viewers -- and the old guard is looking for any way it can to respond. Will networks embed more ads within the programming? Will they go to an entirely new business model?

Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such.

A full transcript follows the video.

This video was recorded on March 6, 2018.

Chris Hill: Last time you were here, one of the things we talked about was television networks experimenting with reducing their ad load, and it started with NBC coming out and saying, "We're looking to reduce ads by 10% or so per hour." Fox (FOX) (FOXA) just upped the ante significantly. The Wall Street Journal reporting today that Joe Marchese, who's the head of Fox Network ad sales, says he wants to reduce commercial time across the broadcast network to two minutes an hour. Not by two minutes an hour. He wants there to be two minutes of ads per hour on broadcast television on Fox by the year 2020. That's going to be fascinating to see, if they can pull that off, because that's a massive drop. And among other things, they would need to not only start charging a lot more for their ads, they would need to either provide significant guarantees in terms of audience, or they would need to completely reorient advertisers' thinking about what should be measurable in their ads.

Bill Barker: Yeah. Or just embed ads more and more around the edges of the broadcast, rather than cutting away the commercials, maybe. I don't know. Say you're doing a football game. I don't know what's being measured here exactly, but if you're doing a football game, you could just leave the cameras on during the commercial break, or for a large chunk of it, and just have the edges of the screen tell you about Budweiser or something like that, and then say you're only doing two minutes of pure commercial time. Maybe. I don't know. But, Fox News or whatever, you could keep squeezing the edges of the screen in a certain way. Because, it's hard to see how they're going to pull off going from, what is it, 15-16 minutes of commercials an hour, to two?

Hill: It's about that, yeah. About 16 minutes on broadcast television.

Barker: You're not going to be able to octuple your prices and keep the same amount of revenue coming in, unless you have a plan to get ads in product placement, or whatever it is, I would think. I'm not smart enough to figure out how you would do that and survive.

Hill: And he was very specific that this refers to broadcast, as opposed to over the top digital. It's entirely possible that there will be, Fox, like Disney, like a lot of other networks, is working on a plan for digital over the top subscription-based models.

Barker: OK, yeah. If you can get people to pay straight up for everything they're willing to pay for, whether that sports, and you have your sitcoms and stuff, where you're keeping the eight minutes per half hour, or whatever it is, get that down to six and a half or something.

Hill: Or, I pay a subscription, I'm getting The Simpsons and Brooklyn Nine-Nine, Family Guy, all those, that sort of thing.

Barker: But, we were talking about the difference between the economics of advertising on a podcast and TV. And one of the reasons, I guess, why for WPP and your third parties who are creating the commercials and placing them and doing all that, why are they necessary -- well, to shoot a commercial is very complex. You have to have a director, you have to have a producer, you have to have a casting agent to cast the thing. Doing a podcast, you're the talent. You're reading out the whole thing. All you have to do, correct me if I'm wrong, somebody writes a script and then, because you have that professional improv background, you can go and take that further than the other guys. But, they're paying for your talent, which is easier than paying 20 people or more for their talents when you're filming a commercial.

Hill: It's also a lot cheaper. It's a lot cheaper.

Barker: Right. You're doing the work of 20. 30, perhaps.

Hill: I mean, depending on the commercial. If Michael Bay is directing this commercial and there are explosions --

Barker: One of those Dilly Dilly commercials, there are 80, 90 people in there. You're doing all of their work.

Hill: Not a beer drinker, but I love the fact that the head of that division of the Budweiser company came out and said, "Yeah, those are catchy ads. They're not doing a damn thing to sell this beer." I forget where it was, but he was interviewed somewhere, and he said, "Oh, no, our sales have not gone up one case because of those commercials."

Barker: I was at a conference a couple of years back, it was a consumer goods conference, and I watched the Anheuser-Busch or whatever part of the company it was that was presenting. I don't know if it was the CEO there or who. It was in Paris, so I think a lot of higher-name people showed up for this conference than normally. You wouldn't normally get a CEO for a lot of these conferences. And he has his 20-minute talk, and then takes 10 minutes from the audience. And all he did was talk about the Super Bowl commercials. It was as if what Budweiser is is a commercial company that happens to sell beer. And that's probably the case, in some ways. If the commercials are things that work, that's what investors need to know for a product like Budweiser. I don't know, they extend the brand in various ways, and there's probably Bud Zero or whatever they're trying to do with it. But, either the commercials are catchy and work, or not.

Hill: And the apparel equivalent is Nike. Nike has a phenomenal track record. Whoever Nike has hired to make their television commercials, that firm is absolutely crushing it, because they produce amazing commercials. I would point out, however, that as great as those commercials have been over the last two years, clearly they haven't been moving the needle in terms of footwear and apparel sales, because Nike has been struggling of late.

Barker: Yeah. Well, TV is not as easy of a vehicle to distribute your advertising, whether it's great or not, as it used to be, because it's all podcasts now.

Hill: It's all about podcast.